EAST ASIA SECURITIES COMPANY LIMITED
9/F, 10 Des Voeux Road Central, Hong Kong.
Dealing: 3608 8000 Research: 3608 8097 Facsimile: 3608 6132
HONG KONG RESEARCH
Analyst: Paul Sham 27 March 2009
CHINA LIFE INSURANCE COMPANY LIMITED (中國人壽)
Sector : Insurance Chairman : Mr. Yang Chao
HKSE Code : 02628
Market Price : HK$26.15 (27/03/2009) Executive Director & President : Mr. Wan Feng
Shares Issued : 7,441.2m (H shares)
Mkt. Cap. : HK$194,587.4m (H shares)
52 weeks Hi/ Lo : HK$35.60 / HK$15.30
HSI / HSCEI : 14,119.50 / 8,481.22(27/03/2009)
Main Business : Life insurance businesses
SUMMARY OF THE FINAL RESULTS FOR THE YEAR ENDED 31ST DECEMBER 2008
Final Results Highlights
RMB million RMB million Change
Gross written premiums and policy fees 135,325 111,886 +20.9%
Net earned premiums 134,650 111,404 +20.9%
Net investment income (recurring) 44,050 44,020 +0.1%
Net realized/unrealized gain/(loss) from investments (13,812) 34,228 -140.4%
Other revenues 1,923 1,720 +11.8%
Total policy benefits & expenses (144,235) (146,390) -1.5%
Profit before taxation 22,804 45,391 -49.8%
Taxation (1,390) (6,331) -78.0%
Profit attributable to shareholders 21,277 38,879 -45.3%
Basic EPS (RMB) 0.72 1.38 -47.8%
Final DPS (RMB) 0.23 0.42 -45.2%
Total DPS (RMB) 0.23 0.42 -45.2%
• China Life Insurance (China Life) recorded a 45.3% y-o-y decline in FY08 earnings to RMB21,277m,
broadly in-line with the market forecast of RMB21,629m. The main reason for the negative growth was
its poor investment performance in FY08, which was partially offset by a strong rise in net premium
earned and lower policyholder dividend.
• Net premiums and policy fees earned increased by 20.9% y-o-y in FY08, primarily due to increases in
gross premiums and policy fees earned from the individual life insurance (+23.3% y-o-y) and accident
& health insurance (+9.6%). Nevertheless, weakness was seen in group life insurance, falling 44.7% y-
o-y. Despite the strong growth in total gross premium and policy fees earned (+20.9% y-o-y) and
stable investment income (+0.1% y-o-y), huge realized/unrealized losses from investment was the key
driver to drag the bottom line of China Life.
• China Life’s total expenses in FY08 was largely flat at RMB144,235m, down only 1.5% y-o-y.
Insurance benefits and claims, the largest component of operating expense, decreased 2.1% y-o-y to
RMB129,990m in FY08, mainly attributable to lower policy dividends which dropped 91.5% y-o-y from
RMB29,251m in FY07 to RMB2,492m in FY08, amid lower investment yield in participating products.
• Basic EPS was RMB0.72, down from FY07’s RMB1.38. A final DPS of RMB0.23 was proposed,
representing a payout ratio of 31.9% for FY08 (FY07: 30.4%). China Life’s latest embedded value
amounted to RMB240,087m, down slightly from RMB252,568m in 2007.
• China Life remained the No.1 life insurer in the Mainland, commanding a market share of 40.3% in
FY08 (FY07: 39.7%).
This report has been prepared solely for information purposes and we are not soliciting any action based upon it. Neither
this document nor its contents shall be construed as an offer, invitation, advertisement, inducement or representation of
any kind or form whatsoever. The information is based upon information which we consider reliable, but accuracy or
completeness is not guaranteed. Opinions expressed herein are subject to change without notice. At time of this report,
East Asia Securities Company Limited has no position in securities of the company or companies mentioned herein.
EAST ASIA SECURITIES COMPANY LIMITED
• Breakdown of gross written premiums & policy fees and deposits by business segments:
(RMB million) FY2008 FY2007 Change
Gross written premium 108,235 91,420 +18.4%
Term Life 300 175 +71.4%
Whole Life 35,402 31,943 +10.8%
Endowment 45,816 40,278 +13.7%
Annuity 26,717 19,024 +40.4%
Policy fees 13,217 7,064 +87.1%
Individual life gross written premiums and policy fees 121,452 98,484 +23.3%
Gross written premium 324 876 -63.0%
Term Life 25 9 +177.8%
Whole Life 274 678 -59.6%
Annuity 25 189 -86.8%
Policy fees 507 627 -19.1%
Group life gross written premiums and policy fees 831 1,503 -44.7%
Accident & Health gross written premiums 13,042 11,899 +9.6%
Total gross written premiums and policy fees 135,325 111,886 +20.9%
• Individual life insurance business saw a 23.3% increase in gross written premiums and policy fees
in FY08, which grew faster than other segments. This increase was primarily due to increases in the
business volume of traditional and participating products such as whole life (+10.8% y-o-y),
endowment (+13.7%) and annuity (+40.4%). Increase in policy fees (+87.1%) also contributed a large
portion to the growth in individual insurance business.
• Group life insurance business recorded a 44.7% plunge in gross written premiums and policy fees in
FY08, primarily due to the change in corporate annuity policy put forward by the government, which led
to a substantial decline in both the sales of annuity (-86.8%) and whole life products (-59.6%).
• Accident & short-term health insurance business registered a healthy growth of 9.6% in gross
premium and policy fee income. This increase was primarily due to increased sales efforts in these
• Net investment income The net-investment yield dropped from 5.76% for FY07 to 4.96% for FY08,
due to a decline in dividends from equity investment. With realised and unrealised losses on trading
securities totalling RMB13,812m in FY08 (vs RMB34,228m gains in FY07) amid the sharp fall of the
capital markets, the total investment return fell from 10.24% for FY07 to 3.4% for FY08.
Investment portfolio 31/12/2008 31/12/2007
(RMB million) (RMB million) Change
Debt securities 575,885 61.4% 443,181 52.1% +29.9%
Term deposits 228,272 24.4% 168,594 19.8% +35.4%
Equity investments 75,082 8.0% 195,147 23.0% -61.5%
Cash & cash equivalents 34,085 3.6% 25,317 3.0% +34.6%
Others 24,079 2.6% 17,970 2.1% +34.0%
Total investments 937,403 100.0% 850,209 100.0% +10.3%
• China Life slashed the proportion of equity securities held to 8% from 23%, while increasing debt
securities to 61.4% from 52.1% and lifting term deposits to 24.4% from 19.8%. The management
guided that they would keep a low equity exposure in its investment mix given their belief that the
financial crisis had yet to bottom.
EAST ASIA SECURITIES COMPANY LIMITED
Outlook & Prospects
• Back to basic in 2009 We think the latest operating results show that the growth of China Life cannot
depend on the fluctuating investment income anymore. Given the worsening economic outlook in
China, it is unlikely for Chinese stock markets to fully revive in 2009. Therefore, we are not optimistic to
China Life’s investment income in the near term. In contrast to its rival, Ping An Insurance, which has
diversified its businesses into different financial services, China Life only sticks to traditional insurance
business. Therefore, the key driver for China Life’s FY09 net profit will solely rely on the organic growth
in its insurance business which may not be able to continue delivering significant bottom line growth in
• Solvency ratio much ahead China Life’s capital fell substantial from RMB38,879m in 2007 to
RMB21,277m in 2008 as a result of the mark-to-market impact on equities. Owing to the fall in
shareholders’ equity, solvency coverage fell from 525% to 310%. Nevertheless, China Life’s
solvency ratio is still ahead of its main rival, Ping An’s 100%-150% levels.
• Bear market favouring insurance business With the tumbling A-share market since 1Q08, people
should start reconsider the lower-risk insurance products. Given the volatile equity market and the
move that PBOC initiated a series of cuts to the benchmark interest rates of RMB deposits, the
attractiveness of insurance products should have re-emerged in the eyes of investors.
• Pricy valuations justified by long-term growth prospect Trading at 23.9x 09E P/E and 3.08x FY08
P/EV, valuations of China Life are not particularly cheap amid the near-term uncertain economic
outlook. However, given its strong rural franchise and brand name in China, China Life should be an
appropriate long-term core holding in the fast-growing China economy. We therefore recommend a
“Long-term Hold” rating for the counter.
Recommendation: Long-term Hold
EAST ASIA SECURITIES COMPANY LIMITED
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